5 Unexpected Retirement Expenses to Worry About

Category: Financial and taxes in retirement

October 25, 2011 — Let’s hope you are one of those who have prepared well for the financial aspects of retirement. If so, congratulations!  But before you start taking too many high fives with your friends or significant other, we suggest you look at some of the expenses that many folks are not prepared for. If you are vulnerable to one of these, take some action now to prepare against it.

If you aren’t concerned about unexpected costs, consider this sobering estimate from the non-profit Employee Benefit Research Institute, which EBRI figures that it will cost $287,000 for a couple to have a 90% chance of covering their medical costs in retirement, assuming that their prescription drug costs are about average.

Long Term Care — Unless you spend all of your assets and have no other recourse, Medicare is not going to cover your long term care expenses (although there are some expenses within that might be covered). Whether you are cared for in your home, in an assisted living facility, or in a nursing home, these expenses can be significant and far higher than your expected social security benefit. Typical assisted living fees are less than in a nursing home or in a Continuing Care Retirement Community (CCRC – which tend to be more luxurious). Figure at least $2400/month for assisted living, with extra costs if more than basic care is needed. Costs vary by state. Charges at CCRCs can easily go to $7,000 or more per month, depending on services provided. If you or your significant other have unusual medical conditions such as Alzheimers or dementia those fees can be much higher.   Figuring that if you spend  10 years in an assisted living facility at $2400 a month,  that is $288,000.  Even if you are cared for in your home by a part-time health care aide at $15/hour, that can add up. Long term care insurance can a good protection against this expense. Investigate carefully before you buy, however, because plans differ greatly. Many, for example, will only cover you for treatment in your home – not much help if you have to go to a nursing home.

Un-reimbursed Medical Expenses  – One expense you will face at age 65 is your Part B premium, which will undoubtedly be more than $110/month once the 2012 premiums have been established.  Then there are costs for your prescription drug plans, as well as drugs that might not be covered at all. Add onto that your supplemental insurance and/or any unreimbursed or out of system coverages you might incur. And then don’t forget your dental and optical expenses, most of which will probably be out of pocket. All of these can end up being a lot of money – far more than most people ever expect.

Travel – Sure you always planned on taking that long-postponed trip to Europe or China. But beyond ones like those you might have some unexpected travel expenses. Such as what might happen if you end up with children and/or grandchildren who live far away. Or if an elderly parent in a far away place needs frequent visits.

Expenses for Loved Ones – The unfortunate part of today’s economy is that many adult children have lost their jobs or had to settle for a lesser one. If one of the families in your inner circle falls on hard times, it might have to be you who pitches in, or they might even come to live with you. You might be their children’s college scholarship source. And if you have elderly parents who require an expensive assisted living facility and their resources can’t handle it – you could have a major expense on your hands.

Major home expenses – If you decide to stick it out in your family home, it, like you, isn’t getting any younger. Roofs and boilers fail, siding needs to be painted, appliances bite the dust, septic systems have to be rebuilt, and driveways repaved. These expenses tend to be major, and they often cannot be avoided. All of these are good reasons to move to a low-maintenance home or community and let someone else worry about it.

On the expense side of the equation you might experience some unwelcome revenue surprises. CD’s that used to earn 4% now bring in .5%, stocks that traded at $100 are now at $50. If you have a 401(k) plan you will have to start paying taxes on the distributions you must start taking in the year you reach age 70.5 (April 1 of the year after that if you are still working). The bottom line is that if you haven’t revised the income projections from your investments lately, it might be time to give them a haircut.
For further reference:
My Wife is Getting Worred – Will We Have Enough Money in Retirement?
Medicare FAQs

What Unexpected Expenses Have You Had? Please share your experiences in the Comments section below – your input is always the most helpful.

Posted by John Brady on October 25th, 2011

11 Comments »

  1. “Gray Divorce.” About 25% of all divorces are among those married 20 or more years – it’s called “gray divorce.” This could be a huge financial (not to mention emotional) blow in retirement.

    Jan Cullinane, The New Retirement: The Ultimate Guide to the Rest of Your Life (Rodale)

    by Jan Cullinane — October 26, 2011

  2. There is only one answer to this…Occupy AARP.:):wink:

    by mark mitchell — October 26, 2011

  3. And do not forget hearing aids and batteries!!!

    by Bruce — October 26, 2011

  4. Jan, I always view “statistics” of ANY kind with “caution.” I always wonder who sponsored the study, size of sample, makeup of sample, etc., etc. Also, here specifically for this topic, were any reasons enumerated for the breakups? I do wonder if any older respondents (legally) breakup and remain together for tax purposes. I remember the film “River Wild,” in which Meryl Streep’s mother chids her for not taking the time and effort to make her marriage work. We seem to get married in the heat of the moment, often when young and hormones are in full stride. Then the reality of spending hours, days, years, decades with another person sets in. I can only speak for myself; I have found new and wonderful things about my partner for 36 years now … and hope for many more. Have there been “unpleasant” surprises (or bumps in the journey) … you bet. But, at least for us we chose not to give up. For a while, I was a real workaholic, and my wife was ready to walk out with the kids. That she didn’t, I will be soooo grateful for forever. I do hope that for those who, for whatever reason, cannot make the whole trip together, that some memory of what made them a “couple” exists to not go after each other in divorce. There is much pain during that time, and the hurt can seem to lead to efforts for “revenge.” Unfortuunately, divorce isn’t the only cause for financial worry for the partners. Death of one can cause many such hardships. Since “staitsics” and actuarial tables forecast that we males live shorter life spans (and often marry younger women), the wife can be left in the lurch. As an example, I am considering working until age 70 to max out my social security. I am 10 years older than my wife, whose own social security will be much less. If I die first, she can collect my benefit for the rest of her life … which could number 20 additional years. Also, even when I retire, once I die, my medical benifits end for her. I realize that we are luckier than some by having those benefits, but the fact that she would then be without health benefits (she has none from her own part-time work) is worrisome. At least she has an incentive to keep me healthy (no need for food taster)! [joke probably in bad taste … sorry] Another thing … there may be a difference in the couple in that one may be much more “social” that the other. I personally can take or leave other people. My wife needs to be with others. Thus, we arelooking at retirment communities that have activities that provide the chance for this social experience. I would be just as happy to remain in my country santuary (I *am* a Mad Monk after all!), but that would not be fair to her. But, heck, in a large community I could always become the Mad Curmudgeon (a la House MD)! 😉

    by Mad Monk — October 26, 2011

  5. What a gloomy future to look forward to. It appears that those of us who have played the game straight,
    never gamed the system, an paid our dues will ultimately be handed the dirty end of the stick.

    by Belleboy — October 26, 2011

  6. May I suggest a what my Dad used to call a contingency fund? Build a fund and invest it in such a way that it doesn’t come to your attention often…Series EE or I bonds come to mind. Do Not earmark it for any purpose. It will be there when you need it. Mine was used to help fund my daily living expenses when I was recovering from a stroke and could not work.
    Also another reason to find some kind of part-time work in retirement. To fund the contingency fund!

    by luluM — October 26, 2011

  7. Mad Monk, the stats are from the U.S. Census.

    by Jan Cullinane — October 27, 2011

  8. I meet many people in their 70s who are considering a move from their home to a CCRC (continuing care retirement community) because of what they went through as their parents aged. They were faced with caregiving responsibilities and difficult decisions and don’t want that burden to be placed on their children. You have everything to gain from planning and making a proactive move from your home. If you wait until you “have” to move, you will not have the same choices, if you have a choice in the matter. CCRCs offer a lot of pluses of a healthy environment as you get older without all the work and expense of owning and maintaining your own property. Some CCRCs even include long term care in the contract, so you don’t have to face that unknown expense either.

    by Laura — October 28, 2011

  9. Before it is “too late,” as you suggest, I’d like to see more discussions regarding the CCRCs. It seems the choices are many and varied. You need to invest a substantial amount of upfront money to get in which means changing one’s mind later (if you don’t like it) is not really an option. Since we have no one (no children) to watch out for us as we get older, we have always felt some kind of assisted living would be necessary. Any thoughts on this?

    by Bev Lore — October 29, 2011

  10. My wife and I have also contemplated a move to a CCRC or to an independent living situation as part of assisted living. Our problem is attitude – ours.
    We.ve looked at many and just don’t feel that “old”. Even though we are in our mid 70′ and recognize the realities of age we just abhore the thought of intermixing with those of a more advanced age who are mostly or completely dependent on whims of staff to regulate their lives. So, my question is are there CCRC’s or indepenent communities providing care without imposing their will or schedule upon those who dance to a different drummer? We’d welccome your input or input from others who have similar problems, comments or solutions.

    by Don Hoffman — October 29, 2011

  11. We came across this article today from MSN Money that has some different perspectives on the same issue: “Five Retirement Strategies to Ignore”
    http://money.msn.com/retirement-investment/5-retirement-strategies-to-ignore-forbes.aspx

    And, there is this one: “Five Ways to Sabotage Your Retirement”
    http://money.msn.com/retirement-investment/5-ways-to-sabotage-your-retirement-usnews.aspx

    by Admin — October 30, 2011

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